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Saturday, 30 June 2012

GAAR Introduced in the Budget 2012-13


The General Anti Avoidance Rule (or) GAAR was proposed in mid –march as part of the budget for fiscal 2013.

GAAR aims to target tax evaders, partly by stopping Indian companies and investors from routing investments through Mauritius or other tax havens for the sole purpose of avoiding taxes.

  • The Finance Minister proposed to remove the burden of proof entirely from the tax payers and shift it to the revenue department.
  • Local or foreign tax payers will also be able to approach authorities in advance for a ruling on their potential tax liabilities.
  • An independent member would be in the GAAR approving panel, while one member would be an officer of the level of joint secretary or above from the ministry of law.
  • A committee would be constituted under the chairmanship of the director general of income tax, with the task of providing recommendations by may31 for formatting the rules and guidelines to implement GAAR provisions.
  • FM proposed to reduce long term capital gains tax on private equity firms on the sole of unlisted securities to 10%, from 20% currently and bring the tax rate in line with what is changed from foreign portfolio investors.
  • The Finance Minister also proposed to cut the withholding tax to 5% from 20% currently on funding through foreign loans for “All businesses”. The budget in mid march had proposed a lower withholding tax for some sectors.
  •  Fm proposed to extend the tax exemption on long –term capital gains related to the sole of unlisted securities in an initial public offering (IPO). The levy of the securities transactions tax would be lowered at the rate of 0.2% on the sole of unlisted securities.
  • Finance Minister Pranab Mukherjee proposed to defer the rollout of GAAR by a year to provide more time to both tax payers and tax office.

The lack of details and the sudden onset of the provisions have been among the factors that have upset foreign investors.

On 28th June night the finance ministry released the guidelines and rules of GAAR.

Guidelines and rules of GAAR:

  • *        On the proposed retrospective amendment in tax rules, the changes will not override the provisions of double tax avoidance treaties India has with 82 countries.
  • *        The retroactive changes will only impact those cases where a deal has been routed through low tax and no tax countries with which India does not have tax treaties.
  • *        The proposed retrospective changes in tax rules will not be used to reopen cases where assessment orders have already been finalized.
  • *        The finance ministry committee stated that non-resident investor of FII ‘s will be exempt from the rules , and also called for monetary threshold from which GAAR will be implemented.
  • *        FII’s not opted for treaty benefits and ready to pay taxes will not come under GAAR, but those who do opt for dual taxation avoidance agreements will come under its purview.
  • *        Investors coming via Mauritius and Singapore may breathe easy as the provisions of the GAAR may not apply to their transactions.
  • *        GAAR may not be involved in case of treaties with some countries where there is Limitation of Benefits(LOB) clause, such as India-Singapore double taxation avoidance agreement.
  • *        The LOB provisions limit the residents, who may be granted treaty benefits and thus prevent treaty shopping practices.
  • *        If you are incurring expenditure in Singapore, we believe you are a genuine resident of that country.
  • *        FII’s such as P-note holders or pooled funds , would not be required to pay any tax in India on capital gains on sole of Indian assets, even if they were routing their investments through low tax jurisdictions to claim treaty benefits.

Friday, 22 June 2012

FEMA(Foreign Exchange Management act)

It is necessary to keep adequate amount of foreign exchange reserves, especially when India has to go in for imports of certain goods.
FDI plays an important role in the long term economic development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology,strengthening infrastructure raising productivity and generating new employment opportunities.
In India FDI is seen as a development tool. 

India is the second most important FDI destination after China during 2010-12.

The sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hard ware.

Mauritius,Singapore,US and UK were among the leading source of FDI.

FDI(Foreign Direct Investment): An investment made by a company or entity based in one country, into a company or entity based in another country.
Foreign Direct Investments differ substantially from indirect investments such as portfolio flows, where in overseas institutions invest in equities listed on a nation's stock exchange.
Entities making Direct Investments typically have a significant degree of influence and control over the company into which the investment is made.
Open economies with skilled workforces and good growth aspects tend to attract larger amount of foreign direct investment.

Both FDI and Portfolio investment scheme have been protected through the FEMA (Foreign Exchange Management Act)
FEMA:
FEMA replaced foreign exchange regulation act and is passed in the winter session of parliament in 1999.
FEMA has brought a new management regime of foreign exchange consistent with the emerging frame work of the world trade organization(WTO).

The main features of this act is
1.Activities such as paymets made to any person outside India(or)receipts from them along with the deal in foreign securities and foreign exchange is restricted.
It is FEMA that gives the central government the power to impose the restrictions.

2. Restrictions are imposed on people living in India who carry out transactions in Foreign Exchange, Foreign Security or who own or hold immovable property abroad.

3. Without general or specific permission of the RBI, FEMA restricts the transactions involving foreign exchange or foreign security and payments from out side the country to India . The transactions should be made only through an authorized person.

4.Deals in Foreign Exchange under the current account by an authorized person can be restricted by the central Government , based on public interest.

5.People living in India will be permitted to carry out transactions in Foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired when he/she was living outside India or when it was inherited to him/her by some one living outside India.

6. Exports are needed to furnish their export details to RBI. To ensure that the transactions are carried out properly . RBI may ask the exporters to comply to its necessary requirement.

Monday, 11 June 2012

Market Participants( who's mood can change the direction of Share market)


There is no certain direction to our Indian market. There are many factors that influencing our market. Inflation, rupee depreciation, GDP, fiscal deficit, IIP etc. all these are depending on the political views and also depending on the mood of the main market participants including individual retail investors, Institutional investors.

Institutional Investors:

Institutional investors such as mutual funds,banks,insurance companies and hedge funds and also publicly traded corporations are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets.

Foreign Investors:

FII(Foreign Institutional Investors),Non resident Indians(NRI's) and persons of Indian origin(PIO's) are allowed to invest in the primary and secondary capital markets in India through the Portfolio Investment Scheme(PIS) .
FDI (Foreign Direct Investment) plays an important role in the long term economic development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure,raising productivity and generating new employment opportunities.
FDI also has an important role in enhancing exports.
In India FDI is seen as a development tool.

So we must encourage foreign investors to invest in our market.